Another Valuable Lesson

As you know from my previous article on, “Cash for clunkers,” it helped the targeted group but hurt many other groups. This is often the case when the government (we) examine a problem: we focus on the group or thing we want to help with a short-term solution; and we are generally blind to the short- and long-term consequences of our decision on everyone else. This is a typical government and hopefully not business or personal approach.

Now, in recent article in CNN Money titled: “Clunkers: Taxpayers paid $24,000 per car” based on an analysis done by Edmunds.com; the article also illustrates an excellent example of how to determine the success of a program (decision) by looking at seemingly complex problem and breaking it down into simple, measurable ways to measure “success” (the correct decision.) Cash For Cars Sydney

Edmunds.com compared the sales of luxury cars and other cars not covered by the program to determine a relationship between the two groups. Then, they projected what sales would have been during the “promotion period” and afterward. The auto industry agreed with those numbers. Based on this, they estimated that cash for clunkers resulted in an additional 125,000 cars sold that would not have been sold. Therefore, 125,000 cars sold at a cost of $3 billion (the government budget) amounts to $24,000 per car.

It also resulted in a bigger drop in October sales that would not have been as deep without the government program. Now we know the impact this government program had on new car sales. But more than that, this analysis is a great learning tool. First, it was (in concept) a simple way to measure the effectiveness of this program; and gave us the ability to make a course correction (to our original decision) so we do not repeat this program again —in spite of the government and auto industry telling us how successful it was.

 

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